Time to Go Cheese Shopping: US Dairy Production to Reach a High

Global dairy supplies are tight, and the recent contamination scares from major global exporter New Zealand have not aided matters. Over the last five years, US milk powder exports have nearly doubled to 500,000 tons, while cheese exports have more than doubled to 250,000 tons. Will the US take the opportunity to further expand its exports?

Poor weather this year has led to a drop in milk output in a number of key dairy producers. New Zealand suffered from drought earlier in the year, which heavily impacted milk production there. Production from January to June is down 15% year-on-year. This was compounded by a delayed spring in Europe pushing back the seasonal upturn in production, and the result is that dairy supplies fell globally and are only now beginning to be rebuilt. However, the US dairy industry is booming. For the first half of 2013, total dairy exports earned $3.17 billion, up 16% from the same period last year.

US milk production in 2013 is expected to reach 91.7m tons, up 0.8m tons year-on-year and a new record high aided by favourable weather conditions. The increase in milk availability has led to US cheese production for the first half of 2013 reaching just over 2.5m tons, up 2% year-on-year, with exports at a record level of 150,000 tons due to increased shipments to Mexico, South Korea, and Japan. Domestic demand has also been good, keeping prices firm.

The fall in cheddar prices from May to the beginning of July was due to the large cheese stocks held in cold storage, totalling a large 525,000 tons, up 8% year-on-year. This was fuelled by the highest cheese production for May since 1982 at 430,000 tons. At the end of June, stocks were still high and were up 5% year-on-year. However, the heat wave of July that affected most milk producing states, in addition to flooding in Wisconsin, the second largest milk producing state, both have hindered milk production and led to the recent recovery in prices.

With global dairy supplies still poor, demand for US products is expected to continue, with cheddar exports expected to rise 11% in 2013. Adding to this demand is the recent scare over contaminated whey protein concentrate (WPC) shipped from New Zealand, which has caused several countries including China to ban its WPC. If this trend continues and expands to other dairy markets, then this could lead to even greater demand for US exports in the coming months.

However, the US dairy industry has historically been focused on serving the domestic market, producing American products for American consumers. Whether US production and cattle management methods can react to further seize the export opportunities remains to be seen.